Commentary

In this shared blog, David Weisberger says a recent WSJ article is wrong and that traders do need to purchase faster and more comprehensive market data to avoid being fined for violating "Best Execution" obligations.

To mollify buyside traders frustrated by the limitations of their DMA platforms, the vendors and brokers who supply the technology are scrambling to incorporate functionality that allows users to trade for the credit of more than one broker.

The trend could lead to fewer systems on buyside traders' desktops as traders remove unwanted programs and settle on one system to handle all their trading and payment needs.

"There is a huge request for this among the traditional asset managers," says Justin Brownhill, a senior executive with Lava Trading. "They feel it will take care of a host of their needs and relieve them of many burdens."

Buyside traders are complaining they must support too many direct market access platforms when only one is necessary. They want just one system to access trading venues and credit all of their brokers.

The issue becomes especially acute as buyside desks incorporate more low-touch DMA trading into their workflows. Currently, about one-third of their business is done via low-touch DMA, according to a recent survey. That figure is expected to grow.

"We do think our clients are going to try and consolidate the number of platforms on their desktops," says Adam Mazur, an executive with Goldman Sachs. "As they try to manage their commission rates down using a mix of high-touch and low-touch services, low-touch will make up a larger percentage. They will have no choice but to use those commissions to pay a number of their relationships across the Street."

Short-List

Most buyside shops get their DMA platforms from a short-list of very large or specialized brokers. Very few actually pony up for vendor-built systems. The result is that many desks support more than one broker's system. And each system only allows them to trade for the benefit of the sponsoring broker.

"There's a huge request for Multi-broker."

Justin Brownhill, Lava Trading

Bulge bracket firms such as Morgan Stanley, Goldman Sachs and Merrill Lynch, for example, "sponsor" their own or vendor-built platforms for favored clients. In return, they get their order flow. Execution houses such as Instinet, ITG, BNY Brokerage and UNX do the same.

The benefit of such an arrangement for the buyside trader is that he gets a system at a price he can afford. The downside is that he must often install multiple systems from multiple brokers in order to satisfy his commission commitments to those brokers.

In other words, traders have not been able to trade on and pay all of their brokers with one system. They have had to jump to a different system each time they needed to trade for a different broker.

Until recently, for example, traders using Goldman Sachs' REDIPlus platform could only trade through that system for the benefit of Goldman. If they wanted to do a trade for the benefit of some other broker, they were out of luck. If that other broker was, say, Morgan Stanley, though, and they had Morgan Stanley's Passport system on their desktop, they might do the trade in Passport.